LAWJOBS.COM S.F. BAY AREA JOB LISTINGS

November 13, 2009

The SEC Didn’t Get ‘One Plus One’ From This Guy

Could it be better for your client to fight the SEC?

That’s the question you might ask yourself after the San Francisco SEC office settled an insider trading case for less than it normally does.

Francis Axiaq, a retired electrician who was accused of buying Restoration Hardware stock on an inside tip ahead of a takeover, agreed to settle for $1.19 million (just-filed (.pdf) here) after fighting the case past summary judgment. It’s not as if the SEC lost the case, but still, Axiaq got a nice $570K discount off the normal settlement price.

So much for the SEC's typical "one plus one" thing ... after the jump.

Normally, the SEC demands what is known as “one plus one” -- the defendant will disgorge the profits made on the trade, plus an equal amount as a penalty. And they usually get it -- without any litigation. In Axiaq’s case, such a fine would’ve totaled about $1.76 million, since he was accused of making $881,102 on the trades.

But Axiaq decided to fight the charges with the William Ziering, a veteran S.F. lawyer. Ziering beat back a summary judgment motion by the SEC trial team, which was headed by John Yun. Then at a pretrial conference in September, Judge Charles Breyer scolded the SEC for not trying harder to settle the case and sent the parties to hash out a settlement in front of Magistrate Judge Joseph Spero.

“I said to the judge, 'The SEC told us it was too late to settle,'” Ziering told Legal Pad. “And he said: ‘What do you mean it’s too late?’ He sort of blew his stack.”

Ziering had several opinions about why the SEC might have settled for less than the normal “one plus one” but he was sure to note that “they knew we were in for a battle, because we’d given them one on the motion for summary judgment, which was denied.”

The head of the SEC’s San Francisco office, Marc Fagel, insisted that the lesson was not that you can get a better deal by fighting charges. He told Legal Pad repeatedly that the SEC takes into account the defendant's “ability to pay” –- a consideration in this case.

“The lesson is not that by fighting the SEC you get the price down,” Fagel said.

UPDATE: After reading this post, Fagel called us back to insist again that the the lower than normal fine nothing to do with Axiaq fighting the charges. He said it had more to do with Axiaq's ability to pay and offered as proof the fact that the retired electrician actually made just $400,000 on his trades. The $881,102 is the amount that Axiaq could have made if he cashed it all in at the right time, and the SEC normally calculates penalties based on that paper profit. The upshot being that Axiaq only has the $400k to pay the $1.19 million fine with. He also said that Axiaq didn't offer to settle for that amount early on.